Abstract

As mentioned earlier, cumulative official assistance from Arab donor countries and Arab agencies to Arab recipient countries amounted to about $55 billion between 1973 and 1989. In comparison, net workers’ remittances to these Arab recipient countries totaled more than $87 billion over the same period (Table 35). From about $800 million in 1973, workers’ remittances grew continuously to $6.8 billion in 1980 and remained on average at about that level between 1981 and 1989. The lion’s share went to Arab countries in Africa, particularly to Egypt. The second largest recipient in Arab Africa was Morocco, followed by Algeria and Tunisia, with Mauritania, an importer of labor, experiencing net negative remittances throughout the period. Workers’ remittances to Egypt are expected to continue to grow in the years ahead, as Egyptian workers are to a certain extent replacing Jordanian and Yemeni workers who were ousted from Saudi Arabia during the Middle East conflict in 1990/91.

As mentioned earlier, cumulative official assistance from Arab donor countries and Arab agencies to Arab recipient countries amounted to about $55 billion between 1973 and 1989. In comparison, net workers’ remittances to these Arab recipient countries totaled more than $87 billion over the same period (Table 35). From about $800 million in 1973, workers’ remittances grew continuously to $6.8 billion in 1980 and remained on average at about that level between 1981 and 1989. The lion’s share went to Arab countries in Africa, particularly to Egypt. The second largest recipient in Arab Africa was Morocco, followed by Algeria and Tunisia, with Mauritania, an importer of labor, experiencing net negative remittances throughout the period. Workers’ remittances to Egypt are expected to continue to grow in the years ahead, as Egyptian workers are to a certain extent replacing Jordanian and Yemeni workers who were ousted from Saudi Arabia during the Middle East conflict in 1990/91.

Net workers’ remittances to Arab Middle East countries increased from a little over $100 million in 1973 to a peak of $2.3 billion in 1980 and then declined to an annual average of $1.5 billion between 1981 and 1989. The largest recipients were the Yemen Arab Republic and Jordan, followed by the People’s Democratic Republic of Yemen and the Syrian Arab Republic. Bahrain and Oman were both net importers of labor and thus had a net outflow of remittances throughout the period under study. No information is available for Lebanon or for Iraq from 1976 on; Iraq is believed to have been a net exporter of labor in the 1970s and a net importer in the 1980s, particularly from Egypt, because part of its indigenous labor force had been mobilized during the war with the Islamic Republic of Iran. The ousting of a large number of Jordanian and Yemeni workers from Kuwait and Saudi Arabia during the Middle East conflict of 1990/91 will have a major impact on the flows of remittances to Arab Middle East recipient countries in the couple of years to come.

The annual distribution of the sum of official assistance and net workers’ remittances accruing to Arab recipient countries—a cumulative $142 billion—is presented in Table 36. The total for Arab Middle East countries is $51.8 billion, growing strongly from $0.5 billion in 1973 to an annual average of close to $6 billion in 1979–81, reflecting the highest levels of oil prices, financial assistance, and employment opportunities in the Arab countries. These financial flows then started to decrease gradually to a low of $1.3 billion in 1989, as falling levels of financial assistance were combined with a decline in remittances because of progressively reduced employment opportunities in the Arab countries. Also, the net workers’ remittances paid out by Bahrain and Oman tended to be larger in the 1980s than in the 1970s.

Cumulative financial assistance and remittances to Arab countries in Africa amounted to $87.6 billion between 1973 and 1989, and were more evenly distributed over the years than was the case for Arab Middle East countries. They grew from $1.5 billion in 1973 to an annual average of $4.9 billion between 1975 and 1979, and further to an annual average of $5.9 billion between 1980 and 1989, as falling levels of financial assistance were more than compensated by growing levels of net workers’ remittances. The latter phenomenon is essentially explained by the fact that a large part of the export of labor from Algeria, Morocco, and Tunisia was to European countries and hence less affected by the economic downturn in the 1980s than labor in the Arab countries; also, the number of Egyptian workers abroad tended to grow during the 1980s, as employment losses in the Arab countries were counterbalanced by export of labor to Iraq once it became a net importer of labor during its war with the Islamic Republic of Iran.

The Arab recipient countries’ GNP and imports from 1973 to 1989 are shown in Tables 37 and 38, respectively. Their fixed investment is presented in Table 39. Although the latter statistical series is incomplete, certain salient features nonetheless emerge. In nominal terms,62 investment by Arab Middle East countries grew strongly during 1973–82 but seems to have declined since then. Investment by Arab African countries, on the other hand, increased less rapidly in the 1970s, but continued to be sustained throughout the 1980s. In terms of GNP (Table 40),63 investment by Arab Middle East countries grew from about 18 percent in 1973 to an average of 30 percent between 1976 and 1980, peaked in 1981–82 at 37 percent of GNP, and then fell somewhat to an average of about 24 percent in 1983–89. Investments by Arab countries in Africa increased continuously from 21 percent of GNP in 1973 to a peak of more than 38 percent in 1978, and then fluctuated between 22 percent and 31 percent of GNP for the remainder of the period.

For most Arab recipients the ratios of investment to GNP were higher than the average 23.8 percent investment/GDP ratio of non-oil developing countries between 1973 and 1987.64 Oil exporting Bahrain had an impressively high average ratio of 43.5 percent, including three successive years (1976–78) with ratios above 100 percent. Algeria and Jordan had average ratios above 30 percent for the years for which investment figures are available, followed by ratios above 25 percent for Oman, Iraq, Tunisia, Mauritania, and the Syrian Arab Republic. Only Lebanon, the Yemen Arab Republic, Morocco, Somalia, and the Sudan have investment/GNP ratios below the average for nonoil developing countries.65 This seems to indicate that at least part of the massive inflows of financial assistance and workers’ remittances was used for investment purposes, resulting in faster economic growth in most of those countries than in developing countries in general.

Relation of Financial Flows to Macroeconomic Variables

Total Official Arab Assistance

Tables 41, 42, and 43, respectively, reflect the total bilateral and multilateral Arab assistance to Arab recipient countries’ GNPs, level of imports, and fixed investment.

Relation to GNP

Between 1973 and 1989, total official Arab assistance represented 2.1 percent of cumulative combined GNPs of Arab recipient countries (2.8 percent for Arab Middle East countries and 1.5 percent for Arab African countries (Table 41)). Jordan was the biggest beneficiary, with an average ratio of 17.8 percent and a peak of 47.5 percent in 1979. It was followed by Mauritania (average of 12.5 percent), the People’s Democratic Republic of Yemen (7.2 percent), the Syrian Arab Republic (6 percent), Bahrain (5 percent), the Yemen Arab Republic (4.9 percent), Somalia (4.8 percent), the Sudan (3 percent), and other recipients with ratios below 3 percent of GNP.

Relation to Imports

During 1973–89, cumulative official Arab assistance represented 7.1 percent of the Arab recipient countries’ cumulative imports (Table 42). The ratio is 7.9 percent for Arab Middle East countries and 5.7 percent for Arab countries in Africa. These relatively low aggregates, however, mask substantial differences over time and among countries, as financial assistance covered a substantial part of certain recipient countries’ imports in certain years.

Concerning Arab Middle East countries, the import cover of financial flows was about twice as large in the 1970s (annual average of about 13 percent) than in 1980s (annual average of about 6 percent) essentially because those countries’ imports were on average two and a half times larger in the 1980s than in the 1970s (annual average of $29.9 billion in 1980–89 versus $12.1 billion in 1973–79). This is even more so for Arab countries in Africa, with an average import cover of 14.6 percent during 1973–79 vis-à-vis 1.7 percent in 1980–89. The latter dichotomy is, however, heavily influenced by massive aid flows to Egypt in 1973–79, followed by mostly negative aid flows to that country during 1980–85. Excluding Egypt, the same evolution as that for Arab Middle East countries holds.

Looking at individual recipient countries in the Arab Middle East, the highest level of import cover was for Jordan, fluctuating between a high of 61 percent in 1979 and a low of 6 percent in 1989 and attaining a cumulative ratio of 25.5 percent. Next came the Syrian Arab Republic, with a cumulative ratio of 24.8 percent, and the Yemen Arab Republic with 14.8 percent. The other countries had a cumulative ratio of 8 percent or less. The highest import cover in Arab African countries benefited Mauritania, with a cumulative ratio of 39.4 percent and a peak of 123 percent in 1976. It was followed by Somalia (cumulative ratio of 28.9 percent), the Sudan (23.3 percent), Egypt (7.8 percent, composed of high ratios in 1973–78 followed by very low ratios afterward), and Morocco (7.2 percent), with low ratios for Tunisia and Algeria.

Relation to Investment

Excluding the financial flows to the recipient countries for the particular years for which no investment figures are available, the ratio of total financial assistance from Arab donors and agencies to the Arab recipient countries’ investment averaged 16.6 percent in the 1970s, with a high of 24 percent in 1974 and a low of 10.5 percent in 1978 (Table 43). This ratio then declined nearly continuously throughout the 1980s, to a low of 1.5 percent in 1988. A small rebound to 2.7 percent occurred in 1989. This fall, however, undoubtedly presents an exaggerated picture; the main reason lies with the absence of investment figures in recent years for countries with traditionally high ratios of assistance to investment, for example, Lebanon, Mauritania, Somalia, and the Sudan. Nonetheless, it also reflects the fact that investment of Arab recipient countries has tended to be sustained throughout the 1980s notwithstanding the decrease in financial assistance flows. The gap was usually met by foreign borrowing, hence the debt-service difficulties encountered by many Arab aid recipients in recent years.

Again, excluding financial assistance flows for the years for which no investment figures are available, the highest cumulative assistance/investment ratios were for Mauritania (63.3 percent with a high of nearly 200 percent in 1978), Jordan (53.1 percent with over 100 percent in 1974–76 and 1979), Somalia (52 percent), the Sudan (36.2 percent), the Yemen Arab Republic (27 percent), the Syrian Arab Republic (23.6 percent), and Lebanon (22.1 percent). Egypt also had relatively large ratios in the period 1973–78, followed by low or even negative ratios afterward.

Net Workers’ Remittances

Relation to GNP

Workers’ remittances constituted 3.4 percent of the cumulative combined GNPs of Arab recipient countries between 1973 and 1989 (Table 44).

In contrast to total official assistance, the cumulative ratio for Arab African countries was 4.4 percent versus 2 percent for Arab Middle East countries. On the other hand, the largest beneficiaries were among the Middle East countries, namely, the People’s Democratic Republic of Yemen, with a cumulative ratio of 34.9 percent, Jordan (20.3 percent), and Yemen Arab Republic (18 percent and close to 60 percent in 1977). Among the Arab countries in Africa, the highest ratios were for Egypt (10.8 percent), Morocco (6 percent), and Tunisia (4.1 percent). All other countries had ratios below 3 percent, including net remittance outflows for Bahrain, Oman, and Mauritania.66

Relation to Imports

Cumulatively, net workers’ remittances represented a little more than 11 percent of the Arab recipients’ imports between 1973 and 1989 (Table 45). Because Arab Africa’s nominal level of remittances was more than three times larger and their cumulative imports at about the same level as those of Middle East countries, their ratio of remittances to imports is a cumulative 16.9 percent, versus 5.6 percent for the Arab Middle East. The highest individual ratios are nonetheless found in the Middle East. The Yemen Arab Republic had the highest cumulative ratio of 54.6 percent, a peak of 163.8 percent in 1976, and more than 90 percent in each of 1975 and 1977. It was followed by the People’s Democratic Republic of Yemen, with a cumulative ratio of 38.2 percent, and Jordan, with 29.2 percent. Concerning Arab African countries, the highest import cover was for Egypt, with a cumulative 32.5 percent and a peak of nearly 60 percent in 1979, followed by Morocco (24.2 percent) and the Sudan (13.9 percent).

Relation to Investment

Excluding the flows of remittances to particular countries for the years for which no investment figures are available, the ratios of net workers’ remittances to investment of Arab recipient countries have tended to rise over the years, from an average of 9.8 percent in 1973–79 to an average of 12.2 percent during 1980–88 (Table 46).67 The similar ratios for Arab Middle Eastern countries were 6.2 and 5.4 percent, respectively, and for Arab countries in Africa 11.4 percent and 16.5 percent, respectively. In other words, the flows of remittances grew faster than investment, indicating a rising propensity to consume an increasing level of remittances.

The highest cumulative ratio of workers’ remittances to investment was for the Yemen Arab Republic, with 96.4 percent. Next came Jordan (60.7 percent), Egypt (43.4 percent), Morocco (25.9 percent), and Somalia (19.7 percent).

Total Financial Assistance and Net Workers’ Remittances

Relation to GNP

Cumulative financial assistance from Arab sources plus net workers’ remittances represented 5.5 percent of the Arab recipients’ GNPs between 1973 and 1989, which includes 4.8 percent for the Arab Middle East and 5.9 percent for Arab Africa (Table 47). The ratios were generally larger in the 1970s than in the 1980s, essentially because of the much lower levels of nominal GNPs in the former period.

Looking at individual countries, the highest ratios were for the People’s Democratic Republic of Yemen (cumulative 42 percent), Jordan (38.1 percent), the Yemen Arab Republic (22.9 percent), Egypt (13.4 percent), and Mauritania (9 percent). The other countries had ratios below 9 percent, including negative ratios for Oman and Bahrain.

Relation to Imports

Arab financial assistance and workers’ remittances made up nearly 18.4 percent of Arab aid recipients’ cumulative imports between 1973 and 1989 (Table 48). The ratio for the Arab Middle East is 13.5 percent, and for Arab Africa, 22.6 percent. Again, ratios were on average larger in the 1970s than in the 1980s, because of the much higher level of imports in 1980–89 than in 1973–79.

The Yemen Arab Republic had the highest individual import cover, with a cumulative ratio of 69.4 percent and ratios well over 100 percent in 1974–77 (including a peak of 215 percent in 1976). Next came Jordan with a cumulative ratio of 54.7 percent and the People’s Democratic Republic of Yemen, 46 percent. Egypt, Somalia, the Syrian Arab Republic, the Sudan, Mauritania, and Morocco all had ratios between 40 percent and 28 percent. The remaining countries had lower ratios, including negative ones for Oman and Bahrain.

Relation to Investment

Excluding the financial flows (assistance plus remittances) to particular countries for the years for which no investment data are available, the ratios of Arab financial assistance and net workers’ remittances to investments of Arab recipient countries fluctuated between 13.3 percent and 34.1 percent during the period under study (Table 49).68 The ratios remained relatively sustained throughout the period; much of the fall of the ratios of Arab African countries resulted from the absence of investment statistics for a number of countries with traditionally high ratios.

The Yemen Arab Republic and Jordan had the highest cumulative ratios of well over 100 percent (123 percent and 114 percent, respectively) indicating that a large part of those financial flows were used for consumption purposes. Next came Somalia with a cumulative ratio of 72 percent and ratios above 100 percent for 1978 and 1980. They were followed by Egypt (cumulative 54 percent), Mauritania (cumulative ratio of 49.7 percent and a peak of 168 percent in 1978), the Sudan (47.8 percent and well over 100 percent in 1980–81), Morocco (33.6 percent), and the Syrian Arab Republic (31.6 percent). The other countries had lower ratios, and Oman and Bahrain negative ratios.

Correlation of Financial Flows with Macroeconomic Variables

This section analyzes the relationship between annual changes in the Arab recipient countries’ GNP, imports, and fixed investment and the variation in the levels of total financial assistance, remittances, and the sum of both. The formulas used are as follows:

[(GNPt/GNPt1)]:[(Ft/Ft1)1](1)[(Mt/Mt1)]:[(Ft/Ft1)1](2)[(It/It1)]:[(Ft/Ft1)1](3)
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The goal is to try to determine the existence and magnitude of the causality between these macroeconomic variables and the two principal financial flows accruing to Arab recipient countries during the period under study.

Total Official Arab Financial Assistance

Correlations with Changes in GNP

In 7 out of the 15 years between 1974 and 1988,69 growth of Arab recipient countries’ GNPs was positively correlated with the growth in total financial assistance from Arab sources, and in 8 years negatively correlated (Table 50). This would indicate that GNP growth rates were in aggregate influenced by many factors other than Arab financial assistance alone, which is not surprising in view of the low share of this assistance compared to GNP. Nonetheless, certain trends emerge over time. During the first seven years (1974–80), the correlation coefficients were positive in all but two years (1976 and 1978). In 1974 and 1975, the ratios were below unity as the very strong growth in assistance flows surpassed GNP growth rates. The reverse holds for 1977 and 1979–80. During the latter half (1981–88), all the correlation coefficients were negative, except in 1985 and 1988, and at relatively low levels, as nominal GNPs continued to rise slowly notwithstanding diminishing levels of financial assistance.

The Arab Middle East countries had positive correlation coefficients in all but four years (1981–82, 1984, and 1987). The coefficients were positive throughout the first seven years (1974–80) and well above unity, except in 1976 and 1979, as nominal GNPs grew on average faster than the increases in financial assistance. Starting in 1981, financialassistance flows declined continuously, whereas nominal GNPs continued to rise in most years. Arab African countries’ GNPs grew in each of the years between 1973 and 1989, except in 1982 and 1988. Hence the correlation coefficients followed the annual variations in financial assistance and were positive in 6 and negative in 9 of the 15 years.

Correlations with Changes in Imports

Except for five years (1978, 1981, 1985, 1988, and 1989), annual variations in the level of imports of Arab recipient countries were positively correlated with changes in the levels of financial assistance accruing to them (Table 51). Also, except in 1977 and 1980, these positive coefficients were below unity. This confirms the expectation that an increase in financial assistance directly results in an increase of imports, but normally not for the full amount of the financial assistance.

The correlation coefficients of Arab Middle Eastern countries were positive in all years except 1976, 1981, and 1988, and above unity in half of those years, indicating a relatively high propensity to import in those countries. Concerning Arab Africa, the coefficients were negative in 6 of the 16 years, above unity in 2, and below unity in 8 of the 10 years with positive coefficients, showing a weaker link between imports and assistance flows.

Correlations with Changes in Fixed Investment

Partially because of incomplete statistics on certain recipient countries’ investment in certain years, the relation between changes in the levels of investment and variations in levels of financial assistance is more ambiguous. For Arab recipient countries as a whole, the correlation coefficients were positive in 11 of the 16 years under study, and negative in the 5 other years (Table 52). This seems to indicate that the aid flows generally have had a positive impact on the investment activity in Arab recipient countries. Negative coefficients normally meant that nominal investment levels continued to grow notwithstanding falling assistance flows, which is quite normal given the lags inherent in most projects.

For Arab Middle Eastern countries, the correlation coefficients were systematically positive during 1974–80 and on average far above unity, pointing to a faster growth in investment than in Arab aid flows. Individual country data are, however, less sanguine. The coefficients were negative in two of the nine years of the second half (1981–89), that is, when investment continued to grow notwithstanding falling aid levels. The same trends in aggregate prevail for Arab African countries, though less forcefully.

Net Workers’ Remittances

Correlations with Changes in GNP

Changes in net workers’ remittances of Arab aid recipient countries were closely correlated with GNP growth between 1974 and 1980, as both grew year after year in tandem. As remittances fell in 1981 and again in 1985–86, whereas nominal GNPs continued to grow, negative correlation coefficients appeared in those three years (Table 53). In 1988, the level of remittances grew, whereas GNPs fell, resulting in another year with negative coefficients.

Because of their relative importance as a percentage of their GNP, net workers’ remittances were positively correlated with GNP in all years but three for Jordan, the People’s Democratic Republic of Yemen, and Morocco, in all years but four for the Sudan, and in all but five years for the Yemen Arab Republic.

Correlations with Changes in Imports

Changes in levels of imports and remittances of Arab recipient countries were positively correlated in 9 of the 16 years under review (Table 54). As both generally grew very strongly from 1973 through 1980, correlations were systematically positive, except in 1976, because of a small dip in imports in that year. During the second half of the period (1981–89), net workers’ remittances fluctuated against a background of continuously declining imports from 1982 to 1987, resulting in six years of negative and three years of positive correlations.

Because of the relatively large share of remittances as a percentage of imports, the correlation coefficients were positive in all but three years for the Yemen Arab Republic, in all but five years for Egypt and Jordan, and, more surprisingly, in all but four years for Tunisia.

Correlations with Changes in Investment Levels

The now classic distinction between the first and second halves of the period under study is again relevant here. Because both net workers’ remittances and fixed investment grew strongly during 1974–80, their correlation coefficients were positive throughout this period (Table 55). Furthermore, the coefficients were on average close to unity, indicating an increase at roughly the same rate. The coefficients were negative in five years of the second half, but the analysis is distorted by the lack of investment data for a number of countries in the final years of the period. Excluding a few exceptional years, the same holds for the individual recipient countries.

Total Financial Assistance and Net Workers’ Remittances

Correlation with Changes in GNP

Changes in nominal GNPs of Arab aid recipient countries were positively correlated with the growth of financial assistance and remittances from 1974 through 1980 (Table 56). The coefficients were below unity, but rising, between 1974 and 1976, indicating a faster growth in financial flows than in GNPs in this early period, but with GNP growth rates gradually catching up. The coefficients were above unity in 1977–80, as growth in GNPs surpassed that of financial flows. For the subperiod 1981–88, the coefficients were negative throughout, as nominal GNPs continued to rise notwithstanding falling levels of financial flows, except for 1983 and 1987, because financial flows rose slightly in those two years, and 1988 during which both financial flows and GNPs fell.70

For Arab Middle Eastern countries, the correlation is even closer, with an inverse relationship occurring only in four years (1981–82, 1984, and 1987). The Arab countries in Africa as a group experienced negative coefficients also in the first sub-period, namely, 1976 and 1979, essentially because of falls in the flows to Egypt. As might be expected, the countries with the highest ratios of financial flows to GNP (the People’s Democratic Republic of Yemen, Jordan, and the Yemen Arab Republic) had the largest number of years with positive correlations.

Correlations with Changes in Imports

The Arab recipients’ growth in imports were positively correlated with changes in financial flows in 10 years out of the 16 under study (Table 57). The exceptions were 1976 (small dip in imports while flows rose), 1981, 1988, and 1989 (growth in imports notwithstanding a fall in financial flows), and 1983 and 1987 (fall in imports while flows rose). The growth in imports in 1981, 1988, and 1989 and the fall in imports in 1983 and 1987 were clearly influenced by movements in oil prices in oil exporting Arab aid recipient countries. During the first subperiod (1974–80), the coefficients were above unity in 1977–78 and 1980, with the growth in imports surpassing the rise in financial flows. All the positive coefficients in the second subperiod were below unity, hovering between 0.26 and 0.54, as imports fell more slowly than the drop in financial flows.

The Arab Middle Eastern countries experienced only three years with negative coefficients, 1976, 1981, and 1988, compared with six years for the Arab African countries, all of which occurred in the second subperiod. Countries with relatively high import covers generally tended to have a low number of years with negative coefficients.

Correlations with Changes in Fixed Investment

The division between the two subperiods is repeated here: systematic positive correlation coefficients in 1974–80 and an equal distribution of positive and negative in 1981–88 (Table 58). This partly masks another phenomenon: investment has tended to follow rises or falls in financial flows with about a two-year lag. Total assistance from Arab sources plus remittances grew continuously from 1973 to 1980; investment increased uninterruptedly from 1973 to 1982. Financial flows fell from 1981 onward, except for small increases in 1983 and 1987; investment started falling from 1983 onward. This seems to confirm that a relatively large part of financial flows to Arab recipient countries was used for public or private investment purposes.

62

Nominal levels of investments expressed in U.S. dollars might be inflated for certain countries in certain years, because the conversion from national statistics is done at official exchange rates.

63

Excluding GNPs of the countries for which no investment figures are available.

64

Source: International Monetary Fund, International Financial Statistics Yearbook, 1990, pp.172–73.

65

No investment figures are available for People’s Democratic Republic of Yemen.

66

Iraq was also on average a net importer of labor, but no statistics on net workers’ remittances are available after 1975.

67

The year 1989 is excluded because a large number of investment figures were not available.

68

The year 1989 is excluded because a large number of investment figures were not available.

69

The calculations for 1989 are excluded because a large number of GNP figures are not available.

70

The calculations for 1989 are excluded because a large number of GNP figures are not available.

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